Walter Cruttenden, an investment banking pioneer in Orange County, has secured $5.5 million in funding from a Wall Street fund manager to bring his latest business venture to market.
Acorns—his Newport Beach-based startup launched under the Cruttenden Partners LLC banner with his 27-year-old son Jeff—aims to bring micro-investing to the masses through a mobile app that features no minimums and nominal fees.
“Investing is best done early and often, and too many people put it off,” said Walter Cruttenden, founder and president of Cruttenden Partners. “We think this is a simple way for people to earn average market returns over the long term.”
So does lead backer Jacob Asset Management, which runs a $750 million fund with headquarters in New York and an office in El Segundo. The firm primarily invests in banks but was swayed by Walter’s track record, which dates back decades.
He founded Cruttenden & Co. in 1984 and grew it into OC’s largest investment bank and a major player in financing emerging companies that have under $100 million in market value. It later became Cruttenden Roth, then Roth Capital, perhaps best known for the investment conference that Walter launched 26 years ago. The event now draws bankers from around the globe to the Ritz-Carlton in Dana Point to hear pitches from startups to established publicly traded companies.
In 1998 he sold a stake in the firm for $5.8 million to Fidelity National Financial Inc. in Santa Barbara. He ultimately exited the company altogether, cashing out for more than $100 million.
The elder Cruttenden also was the founder and chief executive of E-Offering, the investment banking arm of Menlo Park-based E-Trade Group Inc., which became the top provider of online initial public offerings before its $328 million sale in 2000 to Wit Capital Group in New York. It later was sold to Charles Schwab Corp.
Walter also was a partner in a $1 million acquisition of audio technology assets from Hughes Aircraft in 1992, which led to the establishment of SRS Labs Inc. The Santa Ana-based company was acquired in 2012 by DTS Inc. in Calabasas for $148 million in a cash and stock deal.
Prep Work
His latest venture is nearly two years in the making, as the father and son worked with a team of young software designers to clear regulatory hurdles and other challenges that come with creating an advisory engine that makes investing feasible for lower-income wage earners and younger workers.
“It’s been a long journey,” said Jeff Cruttenden, who was immersed in the investing world since childhood. “We set out to build an entirely new type of broker-dealer.”
Jeff, who oversees the portfolios, application design and payments, noticed that many of his classmates at Lewis & Clark College in Portland, Ore., were interested in investing but were turned away by high initial costs, expensive commissions, and the endless choices of stocks, bonds and exchange-traded funds.
“It’s difficult to part with $50, but it’s much easier to part with one dollar 50 times,” he said.
Acorns’ app aims to take the complexity out of decisions on where to invest by asking users about their age, risk tolerance and goals.
Its recommendation engine—developed by Jeff—spits out a portfolio of index funds constructed by a team of mathematicians and engineers, including Nobel Prize-winning economist Harry Markowitz, known as the father of Modern Portfolio Theory.
The portfolios are comprised of index fund ETFs offered by three of the world’s largest money managers: Blackrock, Vanguard and Newport Beach-based Pacific Investment Management Co.
Acorns’ app allows customers to invest small amounts of money—change on the dollar—without commissions or minimum balances. The app can round up credit and debit card purchases to the nearest dollar as well, investing that spare change.
The startup aims to narrow the growing number of U.S. workers who face an uncertain retirement.
The Employee Benefit Research Institute’s 2013 Retirement Confidence survey found nearly half of all U.S. workers express concerns about having enough money for retirement. Only 13% said they felt confident they could retire comfortably.
Acorns has raised $8.3 million since October as its product winds up trial tests and nears market launch.
New users will be given a $5 credit for their inaugural investment.
